All posts tagged inheritance

Today, every generation, thanks to the mining of so much data, can be and is dissected for quick sound bites and headlines. I, too, stop and read some of the headlines. A couple of these have caught my eye and wanted to focus on them today.

Recently, I saw two headlines addressed to millennials. The first was about money habits: In a poll from USA Today/Bank of America Better Money Habits, 33% do not have a savings account, 40% have less than $5,000 saved, more than 50% have not funded their retirement savings. Instead millennials are focused on paying off credit card debt. 40% say they worry about their financial future at least once a week.

I have two reactions: the first is Y-A-W-N. The baby boomers were late to the money responsibility, as a generation, as well. So, not too much of a surprise here. What is taught and acted on in one generation often passes on, in some recognizable manner, to the next generation.

My second reaction is in the form of a question: as a species, are we savers? Or is this a luxury for those in a certain income range? In my 20 years as a financial planner (with three prestigious certifications) I rarely found the dedicated saver. And if stock options were available, it was no better. They seemed to equate more money to higher ticket items. It’s difficult to save when businesses spend a fortune on marketing to us to get us to part with our money. I am not excusing non-savers, I am just painting a landscape that I see. I built my Money Focus program to address this big problem guide those who want to transform their money anxieties to money stewardship.

The second article I read was about millennials wanting to retire early. The take away in this article is not that millennials, as a group, want to chill somewhere, instead it is more fundamental to who they are: they feel insecure about the future, in general. A documentary: Playing with Fire, explores a millennial’s journey to their financial freedom, where health care, social security and social safety nets seem to be eroding and where individual financial future is now one’s own responsibility. Financial literacy is rarely taught in schools or at home. In 2017, only five states were given an A for their financial education efforts from the Champlain College’s Center for Financial Literacy’s Financial Report Card. These states: Alabama, Missouri, Tennessee, Utah and Virginia require that their students take at last a half-year personal finance course or its equivalent. At least it’s something.

Millennials, this has been happening for generations. And will continue for generations. But you can stop it. You can take control of your own financial life. It only takes a willingness to change.

The ancient Chinese used cowrie shells as currency. Babylonia used barley in their towns and villages while silver (shekel) was used mostly in their cities. As I understand, silver and cattle were used by the Jews for much of their trade while Greeks used silver and ox. The Persian Empire used both animals and gold. Copper and bronze, as materials of trade, were introduced by the Romans, presumably, in the 3rd and 4th Centuries B.C. As you can imagine, trade was difficult on a mass scale or in long distances as animals and barley were cumbersome to move from place to place. Cowrie shells were a lot easier to transport but many villages and tradespeople did not honor them. They were not valued n their own locales.

Because metal transport was heavy, metal currency stayed local. Bronzed axes in Gaul and iron swords in Britain were common local metal currencies. By the 3rd Century A.D., the metals in the coins were so minimal that the coins’ value were minimal. Except for gold. Gold’s value increased to the point when, by the 4th Century A.D., gold was the standard bearer for currency exchange. It too was heavy. As it was also difficult to transport, it was not yet in great quantity. But its value was known, its sources were searched, fought over, and hoarded.

Wampum was a common unit of currency between the English and Dutch in the new Americas. Tobacco notes were issued when wampum beads were discontinued. Metals, such as gold and silver, were hard to come by in the developing territory.

Gold eventually became the standard of measurement for most currency, and more specifically, paper money. Because Its purity could be measured, it had stability. Its size could be measured against its purity. This gave currency a standard and ease in “foreign” exchange, exchange beyond one’s borders. Until recently (the last hundred years), there was a direct ratio between the amount of gold a country stored and the amount of currency it had in circulation. A modern country “back then” backed its currency by its gold. That is significant to think about. A strong country did not have more money in circulation than it had gold. Today, that has changed. The gold standard has been removed. Most currency is pegged to the US dollar which, itself, is backed by “the full faith and credit” of its government. More money can be printed as its measure is based on faith and credit. As long as that good “full faith and credit” is supported, its money is valued.

An effective way to view money at home is to regard money education as a process rather than as a single event instruction. When money education is set up like this, money behaviors can be talked about, tweaked and managed more easily.

Here are 3 tips to get you started in developing money stewardship at home:

1 Begin by asking your family members what money means to them. Once the question has been asked, listen, without interruption to their response. It is critical that you not interrupt so your family members feel listened to. They do not want to feel this was a set up question for judgement and commands. When your children feel heard rather than feeling like they are being judged, they will more likely be candid with you in their response.

3 Talk about money. Set up money nights where you talk about topics like: budgets for vacations, issues your children are running into, budgets, how to make money choices, etc. Open up the dialogue with welcomed feedback, with parameters around accountability, develop measurability to plans. All these will develop stewards to money at home.

If you have young kids, and you are wealthy, are your children wealthy? What about your grandchildren, are they wealthy? When I ask these questions to clients, they inevitable pause. I can almost see the wheels spinning in their heads as they consider the money paradigm existing in their lives.

I often hear how they want their kids and grandkids to understand the value of thrift, to see and appreciate how hard it once was, not take money for granted, and yet also give their children and/or grandchildren opportunities and advantages available to them. But how can your progeny learn about life’s hardships when they have private tutors, unique vacations, and financial ignorance?

Money is not often discussed in families with wealth. The Wilmington Trust, in a poll they conducted, found that sixty seven percent of respondents said they were uncomfortable talking about eventual inheritances and only ten percent provided complete information to their heirs.

Concerned that they might thwart motivation, self-worth, and confidence, wealth holders often will askew conversations about money. Hope, intuition, seat of pants guidance are common methodologies, but they are not recipes for success. Trusts and timelines are common tools to allocate money to next generations but neither of these prepare the inheritors from being ready to receive the money. Let me repeat that: neither of these prepare the inheritors from being ready to receive the money. Maybe it’s time to change that paradigm .

Prepare your family for their inheritance. Mentor them to become stewards of that which you worked hard and proudly to accumulate. Ask them what money means to them. Ask them what they would do with money. Give them a small amount of money to see how they handle it. Let them make mistakes while mentoring them towards stewardship.

This is such an important topic, rather than avoid or delay talking about money, use the tools that allow you to create an environment of healthy money conversations and stewardship. Contact me if you want to learn how to talk about money.

Money can become just another conversation. But you need to create that environment so when asked: “Who is Ready for their inheritance?” your children and grandchildren can say: “We are. We are stewards to a legacy. And we are ready in our roles and responsibilities to steward our inheritance.”

Without a foundation of financial competence, people run the eventual risk of squandering, spending, or squabbling over money. Because of this it is essential to impart financial competence directly and early.

Having an early and repeated exposure to real money, gives children a direct experience with money. Collect coins and sort them into various sizes so your children are introduced to money. Have them count the total of different coins and bills as an arithmetic and financial exercise. The writer downer here is to introduce them to money itself. Kids relate to the direct experience with it.

Observe your children with money and let them experience it. Be informal yet frequent about your dialogue with them about it. Kids from 5-7 age love games. Games that involve bartering are great activities for them. In this age group introduce them to different ways money is used. Remember the piggy bank? This is a great time to introduce the piggy bank to your children.

8-11-year old children are at a great age to experience setting limits and making choices. Delayed gratification is an important trait to develop. You may have heard of the Stanford experiments to determine the effect of immediate versus delayed gratification. Delayed gratification correlated with higher SAT scores. It also correlated with self- control. In this age group, delayed gratification can be expressed in self-determined goals/objectives and even incentives from you.

Preteens love to make buying decisions. They can handle the concept of limits. Have them set limits for themselves. They can understand ramification and consequences to exceeding budgets. Have them make budgets, not as tedious chores, but as a fun activity with gratifying outcomes.

Teens feel the pressure of their peers. This need of belonging can tug at their financial behaviors. “But, you don’t understand, I need this…now!” is a common plea. Reinforce their sense of responsibility by having your teens communicate the “why” of their, a “why” with consequences. This is also a wonderful time to Introduce them to the concept of earning, trading talents and skills for money that does not come from a family member.

Spreading their wings and testing their independent lives, young adults are often thrown into a world of a financial tightrope on which they may feel unprepared to take on. They have so many needs and wants tugging at them. How do they decide when to spend, when to save, how to invest and donate? This is atime for young adults, if they haven’t already, to identify what money means to them and set up a system they can follow to save, invest, donate, earn, and spend.

I find money and food to be similar in many ways. It seems to be difficult for many people to gain control over either and it seems that both topics can become emotionally charged, quickly.

Researchers have studied both, finding that the brain can respond similarly to both money and food behaviors. Surprised? Me neither. But I do find it interesting what the neurosciences have discovered. Let me share a little of that with you.

The brain, you should know, responds to fairness. One study asked their participants if they would agree to someone else’s division of money. If they declined, neither party would receive anything. Offers were made, each amounting to receiving $5 but from different totals. Some were offered $5 out of $10 while others were offered $5 from $20+. And here comes the interesting part: the brain’s reward circuitry was activated only for “fair offers.” In this case receiving $5 out f $10 was registered in the brain as being fairer than receiving $5 out of $23.

This part of the brain, one that reacts to “being fairly treated” is the same part of the brain responding to certain cravings, like for chocolate. Why? It seems to that the brain area that is activated in receiving a fair offer is the same area that is activated when we eat craved foods, like chocolate.

For those who are interested, the regions in the brain that respond to fairness are the ventral striatum and ventromedial prefrontal cortex.

Over the holidays, I attended the annual Seattle Business Magazine’s Family Business Awards Dinner. It was a fantastic event, honoring family businesses who deserve recognition in categories such as: Best Practices, Community Involvement and Family Business of the Year.

During the dinner, Chris Schiller, Managing Director of Cascadia Capital, gave a compelling introduction to the Family Business of the Year award.

I would like to quote Chris, as I thought his words were applicable to those of us who ork in guiding and consulting with family businesses and/or their families.

Chris began his talk by saying: “In thinking about tonight’s wonderful celebration of family business, it struck me that the eminent mythologist, writer and lecturer, Joseph Campbell’s Hero’s Journey, is much like the story of family business. All of the family businesses in this room have followed a similar path to Joseph Campbell’s hero, with you or one of your family taking the risk to start a company, then embarking on the journey of building your business, meeting tremendous challenges and personal struggles on the journey, finding various mentors (maybe including the family business advisors in this room) to help you overcome those challenges, and then crossing over into a period of transformation that leads to your ultimate success as a business and a family.

For all of you family businesses in this room, you likely have not arrived yet… rather your story continues to grow with your current generation and the next generation coming up. Often the journey is more important than the destination, as they say.

As investment bankers, my Cascadia colleagues and I live in a world of left brain… financial statements, revenue and EBITDA, numbers. Often the value of a business is ascribed largely to these numbers. However, what I have learned and what drives us, rather, is the stories of our family business clients. We are able to exercise our right brain to tell our client’s story to the market in a way that we find the optimal partner that embraces that story, and thereby sees value that others do not see in just the numbers. These stories are really what drives our passion for working with family business. “

These words were inspiring for me. Thank you, Chris, for speaking them and then letting me share them here. The story of the business is so important for families who continue their businesses across generations.

When the subject of passing money to the next generation is broached, a question that is often asked is: “What are you going to do with the money?” Although this is a great question, I think there is a farther-reaching question to ask as well: “How is the recipient being prepared to receive their inheritance?” What make this question so compelling? Because it redirects the subject from being about the money to being about preparing the inheritors. And this is so important yet often omitted.

There is a common phenomenon taking place around the world. This phenomenon even has a phrase associated with it. It has to do with the common consequence to inherited money: inherited wealth does not tend to survive beyond 3 or 4 generations. Independent studies have found that 70% of families lose their wealth by the end of the second generation while 90% of families lose their wealth by the end of the third generation. The common phrase that accompanies this horrible unintended consequence is: in the U.S., shirtsleeves to shirtsleeves in three generations; in China, rice paddies to rice paddies in 3 generations; in Italy, barn stall to stars to barn stalls in 3 generations. Although this may be a common consequence to wealth, thankfully, today, this common phenomenon is being addressed head on. Families are looking to change the statistical probability to their accumulated wealth.

Let’s look at two strategies families are using to keep their wealth intact as it moves across the generations.

The first strategy is the passing down of the story, the one that describes how challenges ere overcome, how successes were dealt with, and what it meant for the creators of the wealth to build that which they can pass on. This is important for a family to have because each generation is farther removed from the wealth and having the story reminds them of their roots and of the principles it took to accumulate the wealth future generations have become accustomed to having. When succeeding generations understand what it took to build the wealth in an experiential rather than in a didactic fashion, there is a much greater chance for financial stewardship across generations.